Answer:
13.50%
Explanation:
The computation of the market rate of return is shown below:
Current selling price for share = Annual dividend ÷ (Market rate of return - growth rate)
$22 = $2.42 ÷ (Market rate of return - 2.5%)
(Market rate of return - 2.5%) = $2.42 ÷ $22
(Market rate of return - 2.5%) = 11%
So, the market rate of return would be
= 11% + 2.5%
= 13.50%
The market rate of return for Bet'R Bilt Bikes, given the current annual dividend of $2.42 per share, an expected annual dividend growth rate of 2.5% and the current share price of $22, is calculated to be approximately 13.5%.
Explanation:Your question is about determining the market rate of return for Bet'R Bilt Bikes, given the annual dividend and the expected annual dividend growth. To do this, we use the Gordon Growth Model, also known as the Dividend Discount Model (DDM). The formula is as follows:
Market Rate of Return = (Annual Dividend payment/Price per share) + Annual Growth Rate
Plugging in the values from your question, we get:
Market Rate of Return = (2.42 / 22) + 0.025 = 0.135 or 13.5%
So, the market rate of return for Bet'R Bilt Bikes, given the information provided, is approximately 13.5%.
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ignal mistakenly produced 1,175 defective cell phones. The phones cost $67 each to produce. A salvage company will buy the defective phones as they are for $33 each. It would cost Signal $90 per phone to rework the phones. If the phones are reworked, Signal could sell them for $134 each. Signal has excess capacity. Should Signal scrap or rework the phones
Answer:
Company shall rework on the cell phones.
Explanation:
In the given case we will do the comparison of the rework with the scrap.
In case of rework:
Total cost = $67 of manufacturing + $90 of rework = $157 each unit
Selling price then would be = $134 each
Loss on per unit = $157 - $134 = $23 on each cell phone.
In case no rework is done and the mobile phones are sold in scrap then the cost associated = $67 each
Value for sale = $33 each
Loss per unit on such sale = $67 - $33 = $34 each unit.
Since there is plenty of idle capacity the company in order to decrease the loss from selling these defective cell phones, the company shall rework on the phones, as loss in this case will be $34 - $23 = $11 per cell phone less than the loss in case of scrap sale.
On December 31, Mercury Corporation has the following data available:
Net Income $ 190,000
Interest expense 40,000
Total assets at the beginning of the year 800,000
Total assets at the end of the year 760,000
Total common stockholders' equity at the beginning of the year 530,000
Total common stockholders' equity at the end of the year 490,000
What is return on equity? (Round your final answer to two decimal places, X.XX%)
Answer:
37.25%
Explanation:
Average total common stockholders' equity:
= (Beginning common stockholders' equity + Ending common stockholders' equity) ÷ 2
= ($530,000 + $490,000) ÷ 2
= $510,000
Return on Equity = Net income ÷ Average total common stockholders' equity
= $190,000 ÷ $510,000
= 0.3725
= 37.25%
Abe Lincoln was scheduled to give a speech that was rumored to be better than his Gettysburg Address. Many citizens were planning on attending this occasion. The local bed and breakfast was renting out rooms at three times the normal rate during the time that Lincoln would be in town for his speech. Paul and Patti Smith rented a room for that amount because they were so excited to hear Lincoln speak. A day before Lincoln's speech, he was assassinated while enjoying the theatre. The bed and breakfast sought payment for the room rental, but the Smiths refused. The bed and breakfast sued for the Smiths for breach of contract. This is an example of
a. discharge by illegaility
b. discharge by destruction of subject matter
c. discharge by commercial impractibility
d. discharge by death
e. discharge by frustration of purpose
Answer:discharge by frustration of purpose
Explanation:
Discharge by frustration of purpose is a defense concept used in law in order to bring about a breach or termination of a contract.This occurs when unplanned,spontaneous or unforeseen circumstances occurs and thus,it prohibits or prevents the core reason in which the contract was being entered into at the time of the contracts agreement,with both parties fully aware of the core reason which brought about the establishment of the contract.That is to say,the primary objective in which the contract was being created upon has automatically brought about a halt of the secondary reason(which is the contract itself),having in mind that both parties were originally aware of the primary reason for entering the contract.
Here,Paul and Patti Smith rented a room an amount triple it's original price because they were so excited to hear Lincoln speak. A day before Lincoln's speech, he was assassinated.So this disappointment brought about a "discharge by frustration of purpose" by the Smiths,not forgetting that that The bed and breakfast knew it was their original intent,that's why they paid such exorbitant prices for the room rental,although it sued them.
Indicate whether the following events might cause stocks in general to change price, and whether they might cause Big Widget Corp.'s stock to change price:
a. The government announces that inflation unexpectedly jumped by 2 percent last month.
b. Big Widget's quarterly earnings report, just issued, generally fell in line with analysts' expectations.
c. The government reports that economic growth last year was at 3 percent, which generally agreed with most economists' forecasts.
d. The directors of Big Widget die in a plane crash.
e.Congress approves changes to the tax code that will increase the top marginal corporate tax rate. The legislation had been debated for the previous six months.
Answer:
Check the explanation below
Explanation:
Inflation is systematic (Market) risk, it impacts all stocks
Results of company is unsystematic (Specific) risk, as they are as expected stock price wont have much impact
Economic growth is systematic (Market) risk, as it is inline with forecasts stock prices will be constant
Directors death is unsystematic (Specific) risk, stock price will go down
Taxation is systematic (Market) risk, as it is discussed from 6 month, stock price wont have much impact currently
Certain events affect stock prices differently. Unexpected inflation may lead to a general stock price decrease due to cost concerns. Known or anticipated events, like a consistent earnings report or expected economic growth, may not significantly move stock prices, while unexpected tragic company-specific events can cause severe drops in a company's stock price.
Determinants of stock prices can be greatly influenced by macroeconomic indicators, company-specific events, and changes in government policy. Here's how the events listed might affect stock prices in general and Big Widget Corp. specifically:
Inflation Increase: If the government announces that inflation unexpectedly jumped by 2 percent last month, it may cause stocks in general to decrease in price due to increased cost of goods and possible interest rate hikes. Big Widget Corp.'s stock might also decline if higher inflation means higher costs for the company.Quarterly Earnings Report: Big Widget's earnings report coming in line with expectations likely wouldn't result in a significant change in stock price, as the market has already priced in this news.Economic Growth Report: The report of economic growth at 3 percent, in line with forecasts, would likely not have a significant effect on stock prices, as this indicates a continuation of already-expected conditions.Directors' Tragic Accident: The sudden loss of Big Widget Corp.'s directors could lead to uncertainty about the company's future direction, potentially causing a significant drop in its stock price.Corporate Tax Rate Increase: The approval of higher top marginal corporate tax rates, that had been debated for months, could cause stocks in general to decline as corporate profits might be impacted. However, if the market anticipated this change, much of the impact may already have been factored into stock prices, including that of Big Widget Corp.
This variation in potential stock price changes reflects the market's response to new, unexpected information versus anticipated events.
A company wishes to report the highest earnings possible for financial reporting purposes.
Therefore, when calculating depreciation:
a. It will follow the MACRS depreciation tables prescribed by the IRS.
b. It will select the shortest lives possible for its assets.
c. It will select the lowest residual values for its assets.
d. It will estimate higher residual values for its assets.
Answer:
d. It will estimate higher residual values for its assets.
Explanation:
The depreciation is calculated on the value of the asset to be depreciated in the life of the asset that is cost - Salvage or residual value.
Thus, when the residual value is high then the amount to be depreciated will be low.
Then no matter whatever the method of depreciation be: the value of depreciation expense in dollars will be ultimately.
This will help in showing the highest earnings whatever the circumstance be.
Thus correct option is D.
The price elasticity of supply is affected by
A. whether the good produced has close substitutes available.
B. the passage of time.
C. whether the good produced is a luxury or a necessity.
D. the definition of the market.
E. the share of the good in consumer budgets.
Answer:
B. the passage of time.
Explanation:
Price elasticity of supply measures how sensitive quantity supplied are to changes in price.
Price elasticity of supply is determined by the passage of time.
Typically, in the short run, the elasticity of supply is usually inelastic. Prices do not usually impact quantity supplied because in the short run, some of the factors of production are fixed. But in the long run, the price elasticity of supply are more elastic.
The other factors listed above in the options affect the price elasticity of demand.
A no-load mutual fund starts the year with $309 million in net assets and 22 million shares outstanding. It ends the year with $337 million in net assets, and 29 million shares outstanding. The fund made dividend distributions of $1.6 per share and capital gains distributions of $1.2 per share during the year. What was the rate of return on the fund for the year?
Answer:
2.63%
Explanation:
Net assets at beginning is $309 million & shares outstanding is 22 million, then net asset per share is $14.05
Net assets at year end is $337 million & shares outstanding is 29 million, then net asset per share is $11.62
⇒Net asset per share reduced $2.43
The total gain/ loss per share in year included Net asset per share reduced $2.43 + dividend distributions of $1.6 per share + gains distributions of $1.2 per share
= -2.43+1.6+1.2 = $0.37
the rate of return on the fund for the year is 2.63% = 0.37/14.05
Jordan Company is considering the purchase of a machine with the following data:
Initial cost $150,000
One-time training cost 12,000
Annual maintenance costs 15,000
Annual cost savings 75,000
Salvage value 20,000
The cash payback period is
A) 2.70 years.
B) 2.50 years.
C) 2.37 years.
D) 2.17 years
Answer:
Option (A) is correct.
Explanation:
Given that,
Initial cost = $150,000
One-time training cost = 12,000
Annual maintenance costs = 15,000
Annual cost savings = 75,000
Salvage value = 20,000
Cash payback period = Initial Investment ÷ Net annual cash inflows
= [($150,000 + $12,000) ÷ ($75,000 - $15,000)]
= $162,000 ÷ $60,000
= 2.7 years
Final answer:
The cash payback period for the machine is A) 2.7 years.
Explanation:
The cash payback period is the amount of time it takes for the cash inflows from an investment to equal the initial cash outflow. To calculate the cash payback period, we need to determine when the cumulative cash inflows will equal or exceed the initial investment. In this case, the initial cost is $150,000 and the annual cost savings are $75,000. We can divide the initial cost by the annual cost savings to find the cash payback period:
Cash payback period = Initial Investment ÷ Net annual cash inflows
= [($150,000 + $12,000) ÷ ($75,000 - $15,000)]
= $162,000 ÷ $60,000
= 2.7 years
Therefore, the cash payback period for the machine is 2.7 years.
Assume the Residential Division of KappyKappy Faucets had the following results last year: Net sales revenue $16,320,000 Operating income 6,528,000 Average total assets 5,100,000 Management's target rate of return 16% What is the division's asset turnover ratio?
Answer:
3.20
Explanation:
The computation of the asset turnover ratio is shown below:
Total asset turnover = (Net Sales revenue ÷ Average Total assets)
= ($16,320,000 ÷ $5,100,000)
= 3.20
It shows a ratio between the net sales revenue and the average total assets.
All other information which is given is not relevant. Hence, ignored it
On January 1, 2018, Nana Company paid $100,000 for 6,900 shares of Papa Company common stock. The ownership in Papa Company is 10%. Nana Company does not have significant influence over Papa Company. Papa reported net income of $64,000 for the year ended December 31, 2018. The fair value of the Papa stock on that date was $65 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2018?
a. $373,500.
b. $388,500.
c. $403,500.
d. $448,500.
Answer:
d. $448,500
Explanation:
Nana Company paid $100,000 for 6,900 shares
= $100,000/6,900
=$14.49 per share
Nana Company Balance sheet as at December 31, 2018
investment in Papa Company
= 6,900 shares * $65
= $448,500
Dividends are:Multiple Choicepayable at the discretion of a firm's president.treated as a tax-deductible expense of the issuing firm.paid out of aftertax profits..paid only to preferred stockholders.only partially taxable to high-income individual shareholders.
Answer:
The correct answer is letter "C": paid out of aftertax profits.
Explanation:
A dividend is a cash distribution by a company to its shareholders. It is a payment made as a bonus to investors from publicly listed firms or funds for putting their money into the project. They can be paid either in cash or in stocks or sometimes in other forms of property only when the aftertax earnings have been calculated.
Acme Manufacturing is producing $4,060,000 worth of goods this year and expects to sell its entire production. It also is planning to purchase $1,500,000 in new equipment during the year. At the beginning of the year, the company has $500,000 in inventory in its warehouse.
1. Find actual investment and planned investment if:
(a) Acme actually sells $3,850,000 worth of goods.
(b) Acme actually sells $4,000,000 worth of goods.
(c) Acme actually sells $4,200,000 worth of goods
Answer:
actual investment = $1560000
actual investment = $1710000
actual investment = $1360000
and
planned investment = $1500000
Explanation:
given data
producing goods = $4,060,000
new equipment = $1,500,000
inventory in warehouse = $500,000
to find out
actual investment and planned investment
solution
first if sell at = $3850000
unplanned investment is = producing goods - sell
unplanned investment = $4,060,000 - $3850000
unplanned investment = $60000
so
actual investment = planned investment + unplanned investment
actual investment = $1,500,000 + $60,000
actual investment = $1560000
and
next if actually sells is = $4,000,000
unplanned investment = $4,060,000 - $4,000,000
unplanned investment = $210,000
so
actual investment = planned investment + unplanned investment
actual investment = $1,500,000 + $210,000
actual investment = $1710000
and
next if actually sells is = $4,200,000
unplanned investment = $4,060,000 - $4,200,000
unplanned investment = $140,000
so
actual investment = planned investment + unplanned investment
actual investment = $1,500,000 + $140,000
actual investment = $1360000
To find the actual and planned investment, subtract the actual sales from the production value. If actual sales are less than expected, there is an actual investment. If actual sales are more than expected, there is a negative actual investment.
Explanation:To calculate the actual investment and planned investment, we need to consider the difference between the actual sales and the expected sales. The formula for investment is: Planned investment = Production value - Expected sales, Actual investment = Production value - Actual sales.
(a) Acme actually sells $3,850,000 worth of goods:
Planned investment = $4,060,000 - $4,060,000 = $0Actual investment = $4,060,000 - $3,850,000 = $210,000(b) Acme actually sells $4,000,000 worth of goods:
Planned investment = $4,060,000 - $4,060,000 = $0Actual investment = $4,060,000 - $4,000,000 = $60,000(c) Acme actually sells $4,200,000 worth of goods:
Planned investment = $4,060,000 - $4,060,000 = $0Actual investment = $4,060,000 - $4,200,000 = -$140,000Learn more about calculation of investment here:https://brainly.com/question/29441992
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Surround, Inc. provides the following data: Surround, Inc. Comparative Balance Sheet Dec. 31, 2019 Assets Current Assets: Cash and Cash Equivalents $29,000 Account Receivable, Net 31,000 Merchandise Inventory 53,000 Total Current Assets $113,000 Property, Plant, and Equipment, Net 120,000 Total Assets $233,000 Liabilities Current Liabilities: Accounts Payable $4,300 Notes Payable 2,900 Total Current Liabilities $7,200 Long-term Liabilities 90,000 Total Liabilities $97,200 Stockholders' Equity Common Stock $31,000 Retained Earnings 104,800 Total Stockholders' Equity $135,800 Total Liabilities and Stockholders' Equity $233,000 Calculate the debt to equity ratio.
Answer:
0.715
Explanation:
The Debt To equity Ratio is given as:
⇒ ( Debt ) ÷ ( Equity )
Here,
Debt = Long term liability + Total Current Liabilities
= $90,000 + $7,200
= $97,200
and,
Equity = Common stock + Retained earnings
= $31,000 + $104,800
= $135,800
Therefore, we get the
Debt to equity ratio = $97,200 ÷ $135,800
= 0.715
Suppose you purchased 500 shares of Jet-Electro Corporation stock at a price of $22.50 per share. One year later, the shares are selling for $21 each. In addition, a dividend of $1.50 per share was paid at the end of the period. What is the percentage return on the investment?A) -7.1 percentB) -6.7 percentC) 0.0 percentD) 6.7 percentE) 7.1 percent
Answer:
C) 0.0 percent
Explanation:
The net return on any investment is what we receive from the investment in addition to the purchase price paid.
In the given instance the investor pays $22.50 per share as an investment cost, to acquire such shares. Number of shares purchased = 500
Now at the end of the period the shares are sold for $21 each
Also the dividend per share received is $1.50
Thus, total return = $21 + $1.50 = $22.50 per share.
This is exact same as that of the investment price.
Thus net return = Total benefits - Cost = $22.50 - $22.50 = $0
Since net return is $0 the value of return in percentage shall also be $0.
Hudson Co. reports the contribution margin income statement for 2015. Contribution Margin Income Statement For Year Ended December 31, 2015 Sales (9,600 units at $225 each) $2,160,000 Variable costs (9,600 units at $180 each) 1,728,000 Contribution margin $432,000 Fixed costs 324,000 Pretax income $108,000 If the company raises its selling price to $240 per unit. Compute Hudson Co.'s contribution margin per unit.
Answer:
$60 per unit
Explanation:
The computation of the contribution margin per unit is shown below:
Contribution margin per unit = Selling price per unit - Variable expense per unit
= $240 per unit - $180 per unit
= $60 per unit
It shows a difference between selling price per unit and the variable cost per unit
All other information which is given is not relevant. Hence, ignored it
Food Shoppe Galore had the following information: Total market value of a company’s stock: $650 million Total market value of the company’s debt: $150 million What is the weighted average of the company’s debt? Multiple Choice 18.75% 40.75% 55.75% 81.25% 90.50%
Answer:
18.75%
Explanation:
Market value of stock = 650,000,000
Market value of debt = 150,000,000
Total market value of capital = Market value of stock + Market value of debt
Total market value of capital = 650,000,000 + 150,000,000 = 800,000,000
Calculate the proportion of debt;
= 150,000,000/ 800,000,000
= 0.1875
Convert the 0.1875 to a percentage; 0.1875 *100 = 18.75%
Therefore, the weight average of the company's debt is 18.75%
Miller Manufacturing has a target debt-equity ratio of .45. Its cost of equity is 11.4 percent and its cost of debt is 6.1 percent. If the tax rate is 24 percent, what is the company’s WACC?
Answer:6.89%
Explanation:
If it's target debt to equity ratio is 0.45, the percentage of debt in its capital structure = D /D + E = 0.45 / (1 +0.45) = 0.31 = 31%
The percentage of equity in the capital structure = 100 - 31% = 69%
The Weighted Average Cost of Capital = [Weight of debt × cost of debt × (1 - tax rate)] [weight of equity × cost of equity]
=( 0.31 × 11.4% × 0.76) + (6.1% × 0.69)
= 2.69 + 4.21 = 6.89%
Answer:
Explanation:
In the solution provided by ewomazinoade, Cost of debt (6.1%) and cost of equity (11.4%) has been mistakenly swapped.
So, the correct answer would be 9.3%
The definition of internal control developed by the Committee of Sponsoring Organizations (COSO) includes controls related to the reliability of financial reporting, the effectiveness and efficiency of operations, and:A. Compliance with applicable laws and regulations.B. Effectiveness of prevention of fraudulent occurrences.C. Safeguarding of entity equity.D. Incorporation of ethical business practice standards.
Answer:
A. Compliance with applicable laws and regulations.
Explanation:
The definition of internal control developed by the Committee of Sponsoring Organizations (COSO) includes controls related to the reliability of internal and external reporting, the effectiveness and efficiency of operations, and Compliance with applicable laws and regulations.
The internal control definition by COSO includes controls related to financial reporting, operations efficiency, and compliance with laws and regulations. These are underscored by regulations from key institutions and the enactment of the Sarbanes-Oxley Act, highlighting the importance of ethical and compliant financial practices.
The definition of internal control, as developed by the Committee of Sponsoring Organizations (COSO), includes controls related to the reliability of financial reporting, the effectiveness and efficiency of operations, and compliance with applicable laws and regulations. This strategic framework ensures that businesses adhere to standards that protect stakeholders and maintain the integrity of financial transactions and reporting. Institutions such as the Securities and Exchange Commission, the Public Company Accounting Oversight Board, and the Financial Accounting Standards Board set regulations for transaction reporting, demonstrating the importance of these controls. Following major accounting scandals like Enron and WorldCom, the Sarbanes-Oxley Act of 2002 was enacted to increase confidence in financial reporting and mitigate the risk of accounting fraud, underscoring the emphasis on compliance and ethical financial practices.
A stock is expected to earn 15 percent in a boom economy and 7 percent in a normal economy. There is a 35 percent chance the economy will boom and a 65.0 percent chance the economy will be normal. What is the standard deviation of these returns?
A. 3.82 PercentB. 4.85 PercentC. 4.97 PercentD. 5.63 Percent.
Final answer:
To determine the standard deviation of the stock's returns, we calculate the expected return, then use this to find the variance, and take the square root of the variance to get the standard deviation. The correct answer is 3.82%.
Explanation:
To calculate the standard deviation of the returns for this stock, we first need to determine the expected return (mean) using the given probabilities. The expected return is calculated as follows:
Expected return = (Probability of boom × Return in boom) + (Probability of normal economy × Return in normal economy)Expected return = (0.35 × 0.15) + (0.65 × 0.07)Expected return = 0.0525 + 0.0455 = 0.098 or 9.8%Next, we calculate the variance of the returns, which is the sum of the squared deviations of each possible return from the expected return, weighted by their probabilities:
Variance = [tex]([/tex]robability of boom × [tex]([/tex]eturn in boom - Expected return[tex])^2)[/tex]Probability of normal economy × [tex]([/tex]eturn in normal economy - Expected return[tex])^2)[/tex]Variance = [tex]([/tex].35 × (0.15 - 0.098[tex])^2)[/tex]0.65 × [tex]([/tex].07 - 0.098[tex])^2)[/tex]Variance = (0.35 × 0.002722) + (0.65 × 0.000784)Variance ≈ 0.000953 + 0.00051 ≈ 0.001463Standard deviation is the square root of the variance:
Standard deviation = √VarianceStandard deviation ≈ √0.001463Standard deviation ≈ 0.03825 or 3.825%Therefore, the correct answer is A. 3.82 Percent.
Economic exposure refers to a. the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes.b. the extent to which the value of the firm would be affected by unanticipated changes in exchange rate.c. the potential that the firm's consolidated financial statement can be affected by changes in exchange rates.ex post and ex ante currency exposures.
Answer:
All are correct
Explanation:
Economic exposure is a type of foreign exchange exposure caused by the effect of unexpected currency fluctuations on a company’s future cash flows, foreign investments, and earnings.
All three statements for Economic exposure in the text are related to exchange rate changes, in which (a) is about cash flow, (b) is value of the firm, and (c) is financial statement.
Economic exposure refers to the potential impact of unanticipated changes in exchange rates on a company's overall financial position.
Explanation:Economic exposure refers to the extent to which the value of a firm would be affected by unanticipated changes in exchange rates. It measures the potential impact of exchange rate fluctuations on a company's overall financial position. This exposure can arise from a variety of sources, such as the firm's net asset position, cash flows, or balance sheet denominated in foreign currencies.
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Project W requires a net investment of $1,000,000 and has a payback period of 5.6 years. You analyze Project W and decide that Year 1 free cash flow is $100,000 too low, and Year 3 free cash flow is $100,000 too high. After making the necessary adjustments,
(A) the NPV of Project W will decrease,
(B) the payback period for project W will be longer than 5.6 years.
(C) the IRR of Project W will increase
(D) the payback period for Project W will be shorter than 5.6 years
Answer:
Option C is correct.
Explanation:
The paycheck of a period is the time within which the initial investment is recovered.
It does not consider the time value of money, which means all cash flows have equal weightage.
The paycheck period is 5.6 years and it will not be affect by the change in the cash flow in the year 1 and 3.
The IRR (Internal return rate) and NPV ( Net present Value) of the project will get affected as these methods give more weightage to current flows than later.
Thus, increasing of year-1 cash flow decreasing of year-3 cash flow will increase the IRR and NPV of project.
Therefore, the correct answer is option C ( The IRR of the C will increase.)
Final answer:
Adjusting the cash flows of Project W by decreasing Year 1 by $100,000 and increasing Year 3 by the same amount results in a decreased NPV and a longer payback period, while the change in IRR cannot be determined without more information.
Explanation:
When adjusting the free cash flow for Project W, changing Year 1's inflow to be $100,000 lower and Year 3's to be $100,000 higher impacts the Net Present Value (NPV), Internal Rate of Return (IRR), and payback period. Since the NPV calculation discounts future cash flows to their present values, a reduction in earlier cash flows (Year 1) has a greater negative effect on the NPV than the same amount added to later cash flows (Year 3). Therefore, the NPV of Project W will decrease (A). The payback period measures how long it takes to recover the initial investment. Since Year 1's inflow decreases, it will take longer to recoup the investment, thus the payback period for Project W will be longer than 5.6 years (B). The IRR is the discount rate at which the NPV of all cash flows is zero. Adjusting cash flows could change the IRR, but without specifics on the overall cash flow pattern, it cannot be determined whether the IRR will increase (C) or not. So the statement that the payback period for Project W will be shorter than 5.6 years (D) is incorrect.
LRQ Inc. issued bonds on July 1, 2006. The bonds had a coupon rate of 5.5%, with interest paid semiannually. The face value of the bonds is $1,000 and the bonds mature on July 1, 2021. What is the intrinsic value of an LRQ Corporation bond on July 1, 2012 to an investor with a required return of 7%?
Answer:
The face value of the bond is 1,000 and its coupon rate of 5.5% with semi annual payments, which means that 2 payments are made each year. In order to find the amount of each payment we calculate the 5.5% of 1,000 and divide it by 2
1000*0.055/2= 27.5 is Payment
The bond is to be valued at 2012 and has a maturity till 2021 so the number of years to maturity is 9 years which means that the total number of payments are 18 (9*2). The required rate of return is 7%and we will divide it by 2 as payments are semiannual, so we can assume the ytm of the bond is 3.5%. Now as we know the payment, face value, ytm and number of periods we can put this information in a financial calculator and find the price or present value or intrinsic value of the bond.
FV= 1,000
PMT= 27.5
N= 18
I= 3.5
Compute PV = 901.07
The price or present value or intrinsic value of the bond is $901.07
Explanation:
Rogers Sports sells volleyball kits that it purchases from a sports equipment distributor. The following static budget based on sales of 2,000 kits was prepared for the year. Fixed operating expenses account for 80% of total operating expenses at this level of sales.
Sales Revenue $100,000
Cost of goods sold (all variable) 60,000
Gross margin 40,000
Operating expenses 35,000
Operating income $5,000
Prepare a flexible budget based on sales of 1,400, 2,500, and 3,500 units
Answer:
Please see attachment .
Explanation:
Please see attachment .
The treasurer of Riley Coal Co. is asked to compute the cost of fixed income securities for her corporation. Even before making the calculations, she assumes the aftertax cost of debt is at least 4 percent less than that for preferred stock. Debt can be issued at a yield of 12.0 percent, and the corporate tax rate is 25 percent. Preferred stock will be priced at $62 and pay a dividend of $7.40. The flotation cost on the preferred stock is $7.
a) Compute the aftertax cost of debt. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Answer: the after-tax cost of debt = kd(1=T)
= 12(1-0.25)
= 12(0.75)
= 9%
The after-tax cost of debt is 9%
Explanation: The after-tax cost of debt equals cost of debt multiplied by 1-corporate tax rate. The cost of preferred stock is 13.45% ie kp = D/Po-Fc= 7.40/62-7. The after-tax cost of debt is at least 4% less than the cost of preferred stocks. The variables are defined as follows:
kd = Cost of debt
kp = Cost of preferred stocks
Po = Market value of preferred stocks
T = Corporate tax rate
Fc = Flotation cost
Final answer:
The aftertax cost of debt for Riley Coal Co. is calculated by adjusting the yield of the debt (12%) for the corporate tax rate (25%), which results in an aftertax cost of debt of 9.0%.
Explanation:
To compute the aftertax cost of debt for Riley Coal Co., we take the yield at which the debt can be issued (12%) and adjust it for the corporate tax rate (25%).
The formula to calculate the aftertax cost of debt is:
Aftertax cost of debt = Yield * (1 - Tax Rate)
So, the calculation would be:
Aftertax cost of debt = 12.0% * (1 - 0.25)
Aftertax cost of debt = 12.0% * 0.75
Aftertax cost of debt = 9.0%
You are saving for a Porsche Carrera Cabriolet, which currently sells for nearly half a million dollars. Your plan is to deposit $15,000 at the end of each year for the next 10 years. You expect to earn 8 percent each year.a. Determine how much you will have saved after 10 years.b. Determine the amount saved if you were able to deposit $17, 500 each year.c. Determine the amount saved if you deposit $15,000 each year, but with 10 percent interest.
Answer:
a.) $217,298.44
b.) $253,514.84.
c.) $239,061.37 .
Explanation:
a. Determine how much you will have saved after 10 years
This is an ordinary annuity question and you are required to find the Future value (FV) at year 10. Using a financial calculator, key in the following inputs;
Total duration of investment; N = 10
Recurring payment; PMT = -15,000
Interest rate ; I/Y = 8%
PV = 0
then compute Future value; CPT FV = 217,298.437
Therefore, in 10 years, you will have saved $217,298.44 which does not meet your goal of half a million dollars.
b. Determine the amount saved if you were able to deposit $17, 500 each year.
With the recurring payment increasing to 17,500 per year and the interest rate remaining at 8%, find the new Future value by keying in the following inputs;
Recurring payment; PMT = - 17,500
Interest rate ; I/Y = 8%
Total duration of investment; N = 10
PV = 0
then compute Future value; CPT FV = 253,514.843
Therefore, in 10 years, you will have saved $253,514.84.
c. Determine the amount saved if you deposit $15,000 each year, but with 10 percent interest.
It is still an ordinary annuity question , however, the recurring payment(PMT) will be 15,000 as before but with an annual interest rate(I/Y) of 10%. Using a financial calculator, key in the following inputs;
Total duration of investment; N = 10
Recurring payment; PMT = -15,000
Interest rate ; I/Y = 10%
PV = 0
then compute Future value; CPT FV = 239,061.369
Therefore, in 10 years, you will have saved $239,061.37 .
Suppose you are thinking about buying a share of Quack, Inc. You believe that BVR, Co. is a comparable company in terms of risk and as such can be used to help value Quack, Inc. If the earnings per share for Quack, Inc. is currently $2.00, the earnings per share for BVR is $3.00, and the price-to-earnings ratio for BVR is equal to 17.50, what is the price you would be willing to pay for Quack, Inc?
Answer:
Price per share for Quack Inc willing to pay is $35
Explanation:
Data provided in the question:
Earnings per share for Quack, Inc. = $2.00
Earnings per share for BVR = $3.00
Price-to-earnings ratio for BVR = 17.50
Now,
in the question, since it is believed that BVR, Co. is a comparable company in terms of risk and as such can be used to help value Quack, Inc
therefore,
the Price-to-earnings ratio for Quack, Inc will be equals to the Price-to-earnings ratio for BVR
Also,
P/E Ratio = Price per share ÷ Earnings per share
thus,
17.50 = Price per share for Quack Inc ÷ $2.00
or
Price per share for Quack Inc = $35
Kramerica Industries is a AAA-rated company that needs to fund a project with an estimated life of 10 years. It can borrow at a fixed rate of 8.75% or it can borrow at a floating rate of 3-month LIBOR. Vandelay Industries is a BBB-rated company that also needs to borrow for 10 years. It can borrow at a fixed rate of 10.50% or it can borrow at a floating rate of3-month LIBOR + .25%. Produce a swap quote that reduces the borrowing costs of both Kramerica and Vandelay Industries, and makes a spread for the swap bank, Super Terrific National Bank.Show how much each company saves and how much is made by STNB
Answer:
Please see attachment
Explanation:
Please see attachment
Which type of real option allows the output and/or inputs in the production process to be altered, depending on how market conditions change during a project’s life? a. Flexibility option b. Timing option c. Abandonment option
Answer:
correction option is A i.e. Flexibility option
Explanation:
correction option is A i.e. Flexibility option
flexibility option make easier for corporation unit to decide on production or raw material on the basis of market condition.
Abandonment option - As the name indicate this option initiate when corporation suffered huge lost or when there is a conditioned of minimum cash flow due to any reason.
Answer:
B
Explanation:
Timing option makes it possible to alter inputs or outputs in production process.
The contents of a sample of 26 cans of apple juice showed a standard deviation of .06 ounces. We are interested in testing whether the variance of the population is significantly more than .003. The test statistic is a. 500. b. 31.2. c. 1.2. d. 30.
Answer:
Please see attachment
Explanation:
Please see attachment
Kramer Industries has cash of $ 42 comma 000; net Accounts Receivable of $ 47 comma 000; shortminusterm investments of $ 13 comma 000 and inventory of $ 30 comma 000. It also has $ 30 comma 000 in current liabilities and $ 52 comma 000 in longminusterm liabilities. What is the current ratio for Kramer Industries?
Answer:
4.4
Explanation:
Given the following data from Kramer Industries -
Current assets;
Cash = $42,000
Account receivables = $47,000
short term investments = $13,000
Inventory = $30,000
Current assets = 42000 + 47000 + 13000 +30000
= $132,000
Current liabilities = $30,000
Current ratio = current assets/current liabilities
= 132000/30000
= 4.4
The current ratio of Kramer Industries = 4.4